High EMIs for home loan borrowers to continue as RBI pauses repo rate; no respite from high home loan interest rates
Home loan borrowers, who were hoping to get some reprieve from high interest rate, are in for another disappointment. The Reserve Bank of India (RBI) has yet again decided to hold the repo rate, which has diminished the hope for any meaningful reduction in home loan interest rate in the near future. How long will the borrowers have to wait to see a fall in interest rate? What is the best way to manage a home loan in the current high interest rate regimen?
Home loan borrowers, especially the ones who took a home loan before May 2022, are going through one of the most difficult times.
This is because the RBI raised the repo rate by 2.5% from May 2022 to February 2023. All floating rate home loans are now linked to an external benchmark and the repo rate is the benchmark for most such home loans. So, if the repo rate goes up, the interest rate of these home loans also go up by a similar quantum.
A 2.5% hike pushes EMIs up by 20% and total interest up by 44%
Due to the steep rise in repo rate, these borrowers have seen an unprecedented increase in their home loan tenure or a steep hike in their home loan EMIs.
For instance, on a Rs 50-lakh home loan taken for a tenure of 20 years, if you have to pay a higher interest rate of 9.5% instead of 7%, then your EMI goes up by 20% from Rs 23,259 to Rs 27,964. The impact on total interest payment during the tenure of the loan is overwhelmingly high as it goes up by 43.73% from Rs 25.82 lakh to Rs 37.11 lakh.
This kind of an adverse impact can jolt any borrower. The best remedy they can get against this hike is to see a similar rate reduction soon, but that is highly unlikely to happen.
